[ON STATEFED LETTERHEAD]
September 26, 2002
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of StateFed Financial
Corporation (the "Company"), we cordially invite you to attend the Annual
Meeting (the "Meeting") of Stockholders of the Company. The Meeting will be held
at 2:30 p.m. Des Moines, Iowa time, on Wednesday, October 23, 2002, at the West
Des Moines Marriott, 1250 74th Street, West Des Moines, Iowa 50266.
In addition to the election of two directors, stockholders are being asked
to approve the 2002 Omnibus Incentive Plan. Accordingly, your Board of Directors
unanimously recommends that you vote for each of the proposals.
We encourage you to attend the Meeting in person. Whether or not you plan
to attend, however, PLEASE READ THE ENCLOSED PROXY STATEMENT AND THEN COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID
RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. This will save the Company additional
expense in soliciting proxies and will ensure that your shares are represented
at the Meeting.
Thank you for your attention to this important matter.
Very truly yours,
/s/ Randall C. Bray
Randall C. Bray
CHAIRMAN OF THE BOARD
STATEFED FINANCIAL CORPORATION
13523 University Avenue
Clive, Iowa 50325
(515) 223-8484
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 23, 2002
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of StateFed Financial Corporation ("StateFed Financial" or the
"Company") will be held at the West Des Moines Marriott, 1250 74th Street, West
Des Moines, Iowa 50266, at 2:30 p.m. Des Moines, Iowa time, on Wednesday,
October 23, 2002.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The approval of the 2002 Omnibus Incentive Plan. A copy of the plan
is included as Appendix A to the enclosed proxy statement;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on September 25,
2002, are the stockholders entitled to vote at the Meeting, and any adjournments
thereof.
You are requested to complete and sign the enclosed form of proxy which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS:
/s/ Randall C. Bray
Randall C. Bray
CHAIRMAN OF THE BOARD
Des Moines, Iowa
September 26, 2002
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING.
A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
PROXY STATEMENT
STATEFED FINANCIAL CORPORATION
13523 University Avenue
Clive, Iowa 50325
(515) 223-8484
ANNUAL MEETING OF STOCKHOLDERS
October 23, 2002
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of StateFed Financial Corporation ("StateFed
Financial" or the "Company") of proxies to be used at the Annual Meeting of
Stockholders of the Company (the "Meeting") which will be held at the West Des
Moines Marriott, 1250 74th Street West Des Moines, Iowa 50266, on Wednesday,
October 23, 2002, at 2:30 p.m., Des Moines, Iowa time, and all adjournments of
the Meeting. The accompanying Notice of Meeting and this Proxy Statement are
first being mailed to stockholders on or about September 26, 2002. Certain of
the information provided herein relates to State Federal Savings and Loan
Association of Des Moines ("State Federal" or the "Bank"), a wholly owned
subsidiary and predecessor of the Company.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the following proposals: the election of two directors of the
Company; the approval of the 2002 Omnibus Incentive Plan (a copy of the plan is
included as Appendix A to the enclosed proxy statement); and any other matters
that may properly come before the annual meeting. As of the date of this proxy
statement, we are not aware of any other business to be presented for
consideration at the annual meeting.
VOTE REQUIRED AND PROXY INFORMATION
All shares of Company common stock ("Common Stock") represented at the
Meeting by properly executed proxies received prior to or at the Meeting and not
revoked will be voted at the Meeting in accordance with the instructions
thereon. If no instructions are indicated, properly executed proxies will be
voted for the nominees and the adoption of the proposal set forth in this Proxy
Statement. The Company does not know of any matters, other than as described in
the Notice of Meeting, that are properly to come before the Meeting. If any
other matters are properly presented at the Meeting for action, the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment.
Directors will be elected by a plurality of the votes cast. The approval
of the 2002 Omnibus Incentive Plan requires the affirmative vote of a majority
of the votes cast on the matter. In the election of directors, stockholders may
either vote "FOR" all nominees for election or withhold their votes from one or
more nominees for election. Votes that are withheld and shares held by a broker,
as nominee, that are not voted (so-called "broker non-votes") in the election of
directors will not be included in determining the number of votes cast. For the
proposal to approve the 2002 Omnibus Incentive Plan, stockholders may vote
"FOR," "AGAINST" or "ABSTAIN" with respect to this proposal. Proxies marked to
abstain will have the same effect as votes against the proposal, and broker
non-votes will have no effect on the proposal. The holders of at least one-third
of the outstanding shares of the Common Stock, present in person or represented
by proxy, will constitute a quorum for purposes of the Meeting. Proxies marked
to abstain and broker non-votes will be counted for purposes of determining a
quorum.
A proxy given pursuant to solicitation may be revoked at any time before
it is voted. Proxies may be revoked by: (i) filing with the Secretary of the
Company at or before the Meeting a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a subsequent proxy relating to the same
shares and delivering it to the Secretary of the Company at or before the
Meeting; or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Pursuant to the Company's Employee Stock Ownership Plan, unallocated
shares will be voted by the Trustee in the same proportion as allocated shares
voted by participants. Any written notice revoking a proxy should be delivered
to Andra K. Black, Secretary, StateFed Financial Corporation, 13523 University
Avenue, Clive, Iowa 50325.
1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Stockholders of record as of the close of business on September 25, 2002,
will be entitled to one vote for each share then held. As of September 6, 2002
date, the Company had 1,278,870 shares of Common Stock issued and outstanding.
The following table sets forth as of June 30, 2002 information regarding share
ownership of: (i) those persons or entities known by management to beneficially
own more than five percent of the Company's Common Stock, (ii) the Company's
Chief Executive Officer, and (iii) all directors and executive officers as a
group.
SHARES PERCENT
BENEFICIALLY OF
BENEFICIAL OWNER OWNED CLASS
- ------------------------------------------------------------------------------ ----- -----
Krause Gentle Corporation(1) 149,000 11.7%
c/o James B. Langeness
Duncan, Green, Brown, Langeness & Eckley
380 Capital Square, 400 Locust Street
Des Moines, Iowa 50309
StateFed Financial Corporation Employee Stock Ownership Plan(2) 128,161 10.0
13523 University Avenue
Clive, Iowa 50325
Douglas M. Kratz(3) 69,300 5.4
852 Middle Road, Suite 101
Bettendorf, Iowa 52722
Randall C. Bray(4) 4,648 *
StateFed Financial Corporation
13523 University Avenue
Clive, Iowa 50325
Directors and executive officers of the Company and the Bank as a group 178,334 13.6
(8 persons)(5)
- -----------------------
* less than 1%.
(1) The above information is as reported by Krause Gentle Corporation in an
amended statement dated October 5, 2000 on Schedule 13-D/A filed pursuant
to the Securities Exchange Act of 1934.
(2) The amount reported represents shares held by the Employee Stock Ownership
Plan ("ESOP"), of which 112,082 shares of Common Stock were allocated to
accounts of participants. First Bankers Trust Company, N.A., the trustee
of the ESOP, may be deemed to beneficially own all the shares held by the
ESOP. Pursuant to the terms of the ESOP, participants in the ESOP have the
right to direct the voting of shares allocated to participant accounts.
Unallocated shares held by the ESOP are voted by the plan trustee in the
manner that the plan trustee is directed to vote by the majority of the
plan participants who directed the plan trustee as to the manner of voting
the shares allocated to their plan accounts. If an ESOP participant fails
to give timely voting instructions to the plan trustee with respect to the
voting of the shares allocated to the participant's account, the plan
trustee is entitled to vote such shares in its discretion.
(3) The above information is as reported by Douglas M. Kratz in a statement
dated September 12, 2002 on Schedule 13-D filed pursuant to the Securities
Exchange Act of 1934.
(4) Includes 2,500 shares held directly and 2,148 shares subject to options
granted to Mr. Bray under the Stock Option Plan.
(5) Includes shares held directly, as well as jointly with family members, and
shares held in retirement accounts in a fiduciary capacity or by certain
family members, with respect to which shares the listed individuals or
group members may be deemed to have sole voting and investment power. This
table also includes 14,053 and 12,360 shares allocated to the accounts of
Ms. Black and Mr. Wood, respectively pursuant to the Company's ESOP and
34,007 shares subject to options granted to directors and the executive
officers under the Company's Stock Option Plan.
2
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires StateFed's
directors and executive officers, and persons who own more than 10% of the
Company's common stock to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the SEC. Specific due
dates for these reports have been established by the SEC and the Company is
required to disclose in this proxy statement any late filings or failures to
file.
The Company believes, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required during the fiscal year ended June 30, 2002, that other than a late Form
4 filed by Craig Wood in connection with the sale of 900 shares of common stock
and a late Form 5 filed by Craig Wood in connection with the inheritance of
17,498 shares of common stock, Section 16(a) filing requirements applicable to
our executive officers, directors and greater than 10% beneficial owners were
complied with.
3
PROPOSAL I. ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors currently consists of eight members. All
present members of the Company's Board of Directors are also members of the
Bank's Board of Directors. The Board is divided into three classes, each of
which contains approximately one-third of the Board. Approximately one-third of
the directors is elected annually. Directors of the Company are generally
elected to serve for a three-year period or until their respective successors
are elected and duly qualified.
The table below sets forth certain information, as of June 30, 2002
regarding the composition of the Company's Board of Directors, including each
director's term of office. The Board of Directors acting as the nominating
committee has recommended and approved the nominees identified in the following
table. It is intended that the proxies solicited on behalf of the Board of
Directors (other than proxies in which the vote is withheld as to a nominee)
will be voted at the Meeting FOR the election of the nominees identified below.
If a nominee is unable to serve, the shares represented by all valid proxies
will be voted for the election of such substitute nominee as the Board of
Directors may recommend. At this time, the Board of Directors knows of no reason
why any nominee may be unable to serve, if elected. Except as disclosed herein,
there are no arrangements or understandings between the nominee and any other
person pursuant to which the nominee was selected.
SHARES OF
COMMON
TERM STOCK PERCENT
DIRECTOR TO BENEFICIALLY OF
NAME AGE(1) POSITION(S) HELD IN THE COMPANY SINCE(2) EXPIRE OWNED(3) CLASS(4)
-------------- -------- ----------------------------------- ---------- -------- ----------- ---------
NOMINEES
Randall C. Bray 58 Chairman of the Board and President 2001 2005 4,648(5) *
Kevin J. Kruse 42 Director 1993 2005 15,504(6) 1.2%
DIRECTORS CONTINUING IN OFFICE
Eugene M. McCormick 75 Director 1979 2003 40,266(7) 3.1
Sidney M. Ramey 62 Director 1987 2003 13,044(8) 1.0
Andra K. Black 55 Executive Vice President and 1995 2003 33,819(9) 2.6
Director
Craig Wood 44 Executive Vice President and 1995 2004 34,490(10) 2.7
Director
Harry A. Winegar 74 Director 1977 2004 28,266(11) 2.2
William T. Nassif 52 Director 2000 2004 8,297(12) *
- -------------
* less than 1%
(1) At June 30, 2002.
(2) Includes service as a director of the Bank.
(3) Amounts include shares held directly, as well as shares which are held in
retirement accounts, or held by certain members of the named individuals'
families, or held by trusts of which the named individual is a trustee or
substantial beneficiary, with respect to which shares the respective
directors may be deemed to have sole or shared voting and/or investment
power. Amounts also include 15,474, 7,744, 4,344, 4,297 and 2,148 shares
subject to options granted to Directors Black, Ramey, Winegar, Nassif and
Bray under the Stock Option Plan which options are exercisable within 60
days of June 30, 2002.
(4) Percentage is calculated based on 1,278,870 shares of Common Stock
outstanding as of September 6, 2002.
(5) Includes 2,500 shares held directly and 2,148 shares subject to option
granted to Mr. Bray under the Stock Option Plan.
(6) Includes 13,816 shares held jointly with his spouse, 1,688 shares held by
Mr. Kruse's spouse.
(7) Includes 39,266 shares held directly and 1,000 shares held by Mr.
McCormick's spouse.
(8) Includes 1,260 shares held directly, 1,260 shares held by Mr. Ramey's
spouse, 2,780 shares held jointly with his spouse and 7,744 shares subject
to options granted to Mr. Ramey under the Stock Option Plan.
(9) Includes 4,292 shares held directly, 14,053 shares allocated to Ms.
Black's account pursuant to the ESOP and 15,474 shares subject to options
granted to Ms. Black under the Stock Option Plan.
4
(10) Includes 17,498 shares held by his spouse, 4,632 shares held jointly with
his spouse, and 12,360 shares allocated to Mr. Wood's account pursuant to
the ESOP.
(11) Includes 23,922 shares held directly and 4,344 shares subject to options
granted to Mr. Winegar under the Stock Option Plan.
(12) Includes 4,000 shares held directly and 4,297 shares subject to options
granted to Mr. Nassif under the Stock Option Plan.
The business experience of each director of the Company is set forth
below. All directors have held their present position for at least five years
unless otherwise indicated.
RANDALL C. BRAY. Mr. Bray was elected Chairman of the Board in April, 2001
and became President of the Company in January 2002. Mr. Bray is also President
of Greyhawk Partners and has been involved in the financial services business
for more than 30 years. He has been President and CEO of Midland Savings Bank in
Des Moines and was also Chairman and Founder of The Evergreen Group, a
distributor of insurance products to the banking industry.
KEVIN J. KRUSE. Mr. Kruse has served on the Board since 1993. Mr. Kruse is
the Senior Vice President and Corporate Counsel Diversified Management Services,
Inc. a trade association headquartered in Des Moines, Iowa.
EUGENE M. MCCORMICK. Mr. McCormick has served on the Board since 1980. Mr.
McCormick is currently retired. Until 1993, he practiced dentistry in Des
Moines, Iowa.
SIDNEY M. RAMEY. Mr. Ramey has served on the Board since 1987. Since 1982,
Mr. Ramey has been the President of Peoples Abstract Company, a title search
company located in Des Moines, Iowa.
ANDRA K. BLACK. In January, 2002, Ms. Black resumed her duties as
Executive Vice President of the Company. Prior to this appointment, Ms. Black
served as Co-President from July, 2000 and prior to that as Executive Vice
President. In addition to her duties as Executive Vice President, Ms. Black is
responsible for the operations and savings departments, which include compliance
with savings regulations and disclosures, general office administration and
reporting to the Office of Thrift Supervision ("OTS") and the Internal Revenue
Service ("IRS"). Ms. Black also oversees the maintenance of the general ledger
and monthly reporting.
CRAIG WOOD. In January, 2002 Mr. Wood resumed his duties as Executive Vice
President of the Company. Prior to this appointment, Mr. Wood served as
Co-President from July 2000 and prior to that as Senior Vice President. In
addition to his duties as Executive Vice President, Mr. Wood oversees the
mortgage lending and regulatory compliance of the lending department of the
Bank. Mr. Wood joined the Bank in 1986 as a loan officer and was subsequently
promoted to his current position. Mr. Wood is the son-in-law of the former
Chairman of the Board John Golden.
HARRY A. WINEGAR. Mr. Winegar has served on the Board since 1977. Mr.
Winegar is currently retired. Until his retirement in 1992, Mr. Winegar was a
consultant and appraiser for Carlson, McClure & McWilliams, Inc. a real estate
appraisal firm located in Des Moines, Iowa.
WILLIAM T. NASSIF. On July 1, 2000, Mr. William T. Nassif was appointed to
the board of directors. Mr. Nassif is the staff attorney for Legal Services
Corporation of Iowa. Legal Services Corporation provides legal services for low
income Iowans.
5
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES OF THE COMPANY. Meetings of the Company's Board of
Directors are generally held on a monthly basis. The Board of Directors met 9
times during fiscal 2002. During fiscal 2002, no incumbent director of the
Company attended fewer than 75% of the aggregate of the total number of Board
meetings and the total number of meetings held by the committees of the Board of
Directors on which he or she served.
The Board of Directors of the Company has standing Executive, Audit, and
Stock Option and MRP Committees.
The Executive Committee is comprised of Chairman Bray, and Directors Wood
and Black, Senior Vice President Steven Blazek, Senior Vice President John
Kallemyn and Eric Frommelt, Manager Planning and Analysis. The Executive
Committee meets on an as needed basis and exercises the power of the Board of
Directors between Board meetings. This Committee met 12 times during fiscal
2002.
The Audit Committee of the Company operates under a written charter
adopted by the full Board of Directors. The Audit Committee is composed of
Directors Ramey, Nassif and Winegar. All are "independent directors" as defined
in the Nasdaq Stock Market rules. This committee is responsible for the review
of the company's annual audit report prepared by our independent auditors. The
functions of the Audit Committee include:
o reviewing significant financial information for the purpose of
giving added assurance that the information is accurate and timely
and that it includes all appropriate financial statement
disclosures;
o ascertaining the existence of effective accounting and internal
control systems; and
o overseeing the entire audit function both internal and independent.
In fiscal 2002, this committee met 3 times.
The Stock Option and MRP Committee is composed of Directors McCormick,
Ramey, Winegar, Kruse and Nassif. This Committee is responsible for
administering the Company's Stock Option Plan and the MRP. This Committee did
not meet during the fiscal year ended June 30, 2002.
The entire Board of Directors acts as a nominating committee for selecting
nominees for election as directors. Pursuant to the Company's Bylaws,
nominations by stockholders must be delivered in writing to the Secretary of the
Company at least 60 days before the date of the Meeting. If less than 40 days'
notice of the date of the meeting is given or made to stockholders, nominations
must be received by the Company not later than the close of business on the
tenth day following the day on which notice of the date of the meeting was
mailed. In addition to meeting the applicable deadline, nominations must be
submitted in accordance with certain requirements specified in the Company's
by-laws.
MEETINGS AND COMMITTEES OF THE BANK. Meetings of the Bank's Board of
Directors are generally held on a monthly basis. The Board of Directors met 13
times during the fiscal year ended June 30, 2002. During fiscal 2002, no
incumbent director of the Bank attended fewer than 75% of the aggregate of the
total number of Board meetings and the total number of meetings held by the
committees of the Board of Directors on which he or she served.
The Bank has standing Executive, Outside Audit, Loan, Risk, Management
Planning and Compensation and Benefit Committees. A description of each
committee of the Bank is set forth below.
The Executive Committee of the Board of Directors generally acts in lieu
of the full Board of Directors between board meetings. The Executive Committee
also has responsibility for oversight of the Bank's lending policies. This
committee consists of Chairman Bray, Directors Black and Wood, Senior Vice
President Steven Blazek, Senior Vice President John Kallemyn and Eric Frommelt,
Manager Planning and Analysis. During the fiscal year ended June 30, 2002, this
committee met 46 times.
6
The Outside Audit Committee is composed of Directors Ramey, Winegar and
Nassif. The Outside Audit Committee meets on an as needed basis and is
responsible for reviewing the annual audit report and making recommendations to
the Board of Directors with respect to the Bank's independent auditors. This
committee met 3 times during the year ended June 30, 2002.
The Board Loan Committee is responsible for evaluating and approving all
loans above the approval level of the Management Loan Committee. The current
members of this committee are Director Kruse and Director Nassif. This committee
meets on an as needed basis. The committee met 4 times during the year ended
June 30, 2002.
The Management Planning Committee is comprised of Chairman Bray, Director
Wood, Director Black, Steve Blazek, Senior Vice President, John Kellemyn, Senior
Vice President, Mary Simon, Vice President, Kathy Stravers, Branch Manager,
Robert Egger, Branch Manager and Eric Frommelt, Manager Planning and Analysis.
The Management Planning Committee meets as needed to determine the budget. The
Management Planning Committee met 10 times during the year ended June 30, 2002.
The Compensation and Benefit Committee determines the salaries and
benefits of the employees of the Bank. Directors McCormick, Kruse and Nassif
comprise the committee. The committee met 6 times during fiscal 2002.
7
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE INCORPORATED BY REFERENCE
BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF
1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS REPORT
THEREIN, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
The Board of Directors has adopted a charter for the Audit Committee. The
Audit Committee has issued the following report with respect to the audited
financial statements of the Company for the fiscal year ended June 30, 2002.
AUDIT COMMITTEE MATTERS
The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
The Audit and Finance Committee has reviewed and discussed with the
independent accountants the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU 380).
The Audit Committee has also received the written disclosures and the
letter from the Company's independent auditors required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The Committee has discussed with the independent auditors that firm's
independence. The Audit Committee has considered whether the provision of
non-audit services is compatible with maintaining the principal auditor's
independence; and
Based upon the Committee's discussions and review described above, the
Committee recommended that the Board of Directors include the audited
consolidated financial statements in the Company's Annual Report on Form 10-KSB
for the year ended June 30, 2002 filed with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Sydney Ramey
Harry Winegar
William Nassif, Chairman
8
AUDITORS
We have selected McGladrey & Pullen LLP to audit the Company's financial
statements for the fiscal year ending June 30, 2003. For the fiscal year ending
June 30, 2002, the Company had engaged the accounting firm of McGowen, Hurst,
Clark & Smith, P.C. to audit its financial statements. A representative of
McGowen, Hurst, Clark & Smith, P.C. is expected to attend the Meeting to respond
to appropriate questions.
AUDIT FEES. The aggregate fees billed to StateFed Financial Corporation by
McGowen, Hurst, Clark & Smith, P.C. for the professional services rendered for
the audit of StateFed's consolidated financial statements for fiscal 2002 and
the reviews of the consolidated financial statements included in StateFed's
Forms 10-QSB for that year were $32,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were no fees
for financial information systems design and implementation billed to StateFed
by McGowen, Hurst, Clark & Smith, P.C. for fiscal 2002.
ALL OTHER FEES. Other than audit fees, the aggregate fees billed to StateFed by
McGowen, Hurst, Clark & Smith, P.C. for fiscal 2002 were $25,105.
The Audit Committee of the Board of Directors has considered whether the
providing of all non-auditing services (and the aggregate fees billed for such
services) in fiscal 2002 by McGowen, Hurst, Clark & Smith, P.C., the principal
independent auditors, is compatible with maintaining the principal auditors'
independence.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On August 21, 2002, the Company received a letter from its independent
accountants, McGowen, Hurst, Clark & Smith, P.C., stating that they had decided
not to stand for re-election as the Company's independent accountants.
The reports of McGowen, Hurst, Clark & Smith, P.C. on the financial statements
for the past two fiscal years ended June 30, 2000 and 2001 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle.
Moreover, during the Company's two most recent fiscal years and the subsequent
interim period through August 21, 2002, there have been no disagreements with
McGowen, Hurst, Clark & Smith, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of McGowen, Hurst, Clark & Smith,
P.C., would have caused McGowen, Hurst, Clark & Smith, P.C. to make reference to
the subject matter of the disagreement(s) in connection with its report.
During the two most recent fiscal years and the subsequent interim period
through August 21, 2002, there were no reportable events (as defined in
Regulation S-B Item 304(a)(1)(v)).
The Company provided McGowen, Hurst, Clark & Smith, P.C. with a copy of the
disclosure made and has requested that McGowen, Hurst, Clark & Smith, P.C.
furnish it with a letter addressed to the Securities and Exchange Commission
stating whether or not it agrees with the above statements. A copy of such
letter, dated September 3, 2002, is filed as Exhibit 16.1 to the amended Form
8-K filed with the Securities and Exchange Commission on August 21, 2002.
On September 6, 2002, the Company engaged McGladrey & Pullen, LLP as its new
independent accountants to audit the Company's financial statements for the
fiscal year ended June 30, 2003. During the two most recent fiscal years and the
subsequent interim period through September 6, 2002, neither the Company, nor
anyone on its behalf, has consulted with McGladrey & Pullen, LLP regarding (i)
either the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements; or (ii) any matter that was
either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of
Regulation S-B, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-B.
9
DIRECTOR COMPENSATION
The Company's directors do not receive a fee for serving on the Company's
Board of Directors. No fee is paid for membership on the Board's committees. All
Bank directors receive a fee of $700 per month. A fee of $200 is paid to
non-employee directors of the Bank for committee membership. $200 was paid to
certain directors for three audit committee meetings, one compensation committee
meeting and one extra meeting.
EXECUTIVE COMPENSATION
The Company has not paid any compensation to its executive officers since
its formation. The Company does not presently anticipate paying any compensation
to such persons until it becomes actively involved in the operation or
acquisition of business other than the Bank.
The following table sets forth information regarding compensation paid by
the Company and the Bank to their President for services rendered during the
fiscal year ended June 30, 2002. No executive officer made in excess of $100,000
during the fiscal year ended June 30, 2002.
----------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-----------------------------------------------------------------
NAME AND PRINCIPAL FISCAL SALARY BONUS SECURITIES ALL OTHER
POSITION YEAR ($) ($) UNDERLYING COMPENSATION
OPTIONS/SARS ($)(1)
(#)
==================================================================================
Randall C. Bray, President 2002 $62,400 $500 - $7,800
-------------------------------------------------
2001 25,200(2) - 10,744 1,800
-------------------------------------------------
2000 - - - -
----------------------------------------------------------------------------------
- ----------------------
(1) Includes director fees of $7,800 and 1,800 for fiscal years 2002 and 2001.
(2) Includes consulting fees of $15,600 received in the fiscal year 2001 prior
to executive's appointment as President.
The following table sets forth information regarding the number and value
of stock options at June 30, 2002 held by the Company's President.
=================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
- -----------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#)(1) FY-END ($)(2)
-----------------------------------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------
Randall C. Bray - - 2,148 12,892 - -
=================================================================================================================
- -------------------
(1) Represents an option to purchase Common Stock awarded to the Company's
Chief Executive Officers pursuant to the terms of the incentive stock option
award.
(2) Represents the aggregate market value (market price of the common stock
less the exercise price) of the option granted based upon the average of the bid
and asked price of $9.95 per share of the common stock as reported on the NASDAQ
Bulletin Board on June 30, 2002.
10
EQUITY COMPENSATION PLAN INFORMATION
- -------------------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted-average Number of securities remaining
to be issued upon exercise price of available for future issuance
exercise of outstanding under equity compensation plans
outstanding options, options, warrants (excluding securities reflected
warrants and rights and rights in column (a))
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 49,050 $7.08 -
by security holders
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans not - - -
approved by security holders
- -------------------------------------------------------------------------------------------------------------------
Total 49,050 $7.08 -
- -------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS AND SALARY CONTINUATION PLAN
EMPLOYMENT AGREEMENTS. The continued success of the Bank depends to a
significant degree on the skills and competence of its officers. In April 2001,
the Bank entered into an employment agreement with President Bray. The
employment agreement provides for an initial annual base salary of $62,400,
subject to annual review and adjustment by the Company's Board of Directors, and
an initial term of three years. The agreement provides for extensions of one
year, in addition to the then-remaining term under the agreement, on each
anniversary of the effective date of the agreement, subject to a formal
performance evaluation performed by disinterested members of the Board of
Directors of the Bank. The agreement provides for termination upon the
employee's death, for cause or in certain events specified by OTS regulations.
The employment agreement is also terminable by the employee upon 60-days' notice
to the Bank.
The employment agreement provides for payment to the employee of his
salary for the remainder of the term of the agreement, plus up to 299% of the
employee's base compensation, in the event there is a "change in control" of the
Bank where employment terminates involuntarily in connection with such change in
control or within 12 months thereafter. This termination payment is subject to
reduction by the amount of all other compensation to the employee deemed for
purposes of the Code to be contingent on a "change in control," and may not
exceed three times the employee's average annual compensation over the most
recent five-year period or be non-deductible by the Bank for federal income tax
purposes. For the purposes of the employment agreement, a "change in control" is
defined as any event which would require the filing of an application for
acquisition of control or notice of change in control pursuant to 12 C.F.R. ss.
574.3 or 4. Such events are generally triggered prior to the acquisition or
control of 10% of the Common Stock. The agreement guarantees participation in an
equitable manner in employee benefits applicable to executive personnel.
Based on current salaries, if Mr. Bray's employment had been terminated as
of June 30, 2002, under circumstances entitling him to severance pay as
described above, he would have been entitled to receive a lump sum cash payment
of approximately $186,576.
11
CERTAIN TRANSACTIONS
The Bank has followed a policy of granting consumer loans and loans
secured by the borrower's personal residence to officers, directors and
employees. The loans to employees, executive officers and directors are made in
the ordinary course of business and on the same terms and conditions as those of
comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features. Loans to executive
officers and directors must be approved by a majority of the disinterested
directors and loans to other officers and employees must be approved by the
Bank's Loan Committee.
All loans by the Bank to its directors and executive officers are subject
to OTS regulations restricting loan and other transactions with affiliated
persons of the Bank. Loans to all directors, executive officers, employees and
their associates totaled $1.8 million at June 30, 2002, which was 13.0% of the
Company's stockholders' equity at that date. All of such loans were made on the
same terms, including interest rates, as those of comparable transactions
prevailing at the time.
12
PROPOSAL II - APPROVAL OF OMNIBUS INCENTIVE PLAN
In order to promote the long-term interests of StateFed Financial
Corporation and its stockholders by providing a flexible and comprehensive means
for attracting and retaining directors, advisory directors, officers and
employees of StateFed Financial Corporation and its corporate affiliates and to
replace the existing Stock Option and Incentive Plan, which has been depleted of
awards, our Board of Directors has adopted and recommends that you vote to
approve the 2002 Omnibus Incentive Plan (the "2002 Plan").
DESCRIPTION OF THE 2002 PLAN
Effective May 18, 2002, the Board of Directors adopted the 2002 Plan. It
is designed to provide for the granting of incentive awards in the form of stock
options, stock appreciation rights, restricted stock and performance awards
(denominated in cash, securities or other property) to any director, advisory
director, officer or employee of the Company or its corporate affiliates
(including but not limited to State Federal Savings and Loan Association of Des
Moines). The awards will be granted at the discretion of a committee charged
with administering the plan comprised of two or more members of the Board of
Directors of the Company, each of whom shall be non-employee, outside directors.
We have made available a total of 127,952 shares of common stock for issuance
under the 2002 Plan.
The plan provides the committee with broad discretion to select the
officers, employee, consultants, and advisors to whom awards may be granted, as
well as the type, size, and terms and conditions of each award. The 2002 Plan
permits grants of the following types of awards:
o non-qualified and incentive stock options;
o stock appreciation rights;
o restricted stock grants; and
o other performance-based awards.
The committee may grant either stock options intended to qualify as
incentive stock options under Section 422 of the Code ("ISOs") or stock options
not intended to qualify as such ("NQSOs"). ISOs may be granted only to employees
of the Company or its corporate affiliates.
The term of an NQSO granted under the plan may not exceed 15 years. The
term of an ISO may not exceed ten years, provided that the term of an ISO
granted to an employee who owns stock comprising more than ten percent of the
combined voting power of all classes of stock of StateFed Financial Corporation
and its corporate affiliates (defined in the 2002 Plan as a "Ten Percent
Holder") may not exceed five years. The exercise price of a stock option granted
under the plan will be determined by the committee, provided that (i) the
exercise price of an ISO may not be less than 100% of the market value of a
share of common stock on the date of grant of such option and (ii) the exercise
price of an ISO granted to a Ten Percent Holder may not be less than 110% of the
market value of a share of StateFed Financial Corporation's common stock on the
date of grant of such option.
The committee is authorized to award stock appreciation rights ("SARs"),
each of which, upon exercise thereof, will entitle the holder thereof to receive
a number of shares of the Company's common stock or cash or a combination
thereof, as the Committee shall determine, the aggregate value of which shall
equal (as nearly as possible) the amount by which the market value per share of
the Company's common stock on the date of exercise exceeds the exercise price of
the SAR, multiplied by the number of shares underlying the SAR. A SAR may be
related to an option or granted independently of an option. The committee will
determine the exercise price and term of each SAR, provided that (i) the term of
a SAR may not exceed 15 years and (ii) an option related to a SAR which is an
ISO must satisfy all requirements pertaining to ISOs (e.g., exercise price,
term).
The committee may grant awards of restricted stock, subject to such
restrictions as the committee may impose thereon, which restrictions may lapse
in the manner deemed appropriate by the committee. The restrictions may include,
among other things, limitations on dividend and voting rights.
13
The committee is authorized to grant performance-based awards to
participants of the 2002 Plan which may be denominated in cash, shares of our
common stock, other securities, other awards under the plan or other property.
The term of such an award may not exceed 15 years. The specific performance
goals for each award are at the discretion of the committee.
Unless the committee provides otherwise, in the event of a participant's
termination of service to StateFed Financial Corporation by reason of
disability, the participant may exercise an option or SAR theretofore granted to
such participant within a period of three months from the date of termination of
service in the case of an ISO or one year from the date of termination of
service in the case of a NQSO or SAR (but in no event after the expiration date
of the award). If a participant to whom an option or SAR was granted is
terminated for cause, all rights under such option or SAR will expire
immediately.
Unless the committee provides otherwise, in the event of termination of
service due to retirement, a participant to whom an option or SAR is granted may
exercise such award following retirement for a period of three months, in the
case of an ISO, or two years following retirement, in the case of a NQSO or a
SAR (but in no event after the expiration date of the award). In the event of
the death of a participant to whom an option or SAR is granted, the person to
whom the award is transferred may exercise such award within a period of two
years following the death of the participant (but in no event after the
expiration date of the award).
In the event of termination of service of a participant to whom restricted
stock is granted for any reason other than death, disability or retirement,
unless the committee determines otherwise, all shares of restricted stock as to
which applicable restrictions have not yet lapsed will be forfeited and returned
to StateFed Financial Corporation. Unless the committee determines otherwise, in
the event of termination of service of the person to whom restricted stock is
granted due to death, disability or retirement, all shares subject to
restrictions at the time of termination will become free of such restrictions.
The rights of a participant who is granted a performance or other award in
the event of termination of service of such participant will be governed by the
terms of the applicable award agreement.
In the event of a merger or other business combination of StateFed
Financial Corporation in which we are not the surviving entity, any participant
to whom an option or SAR has been granted will, with limited exception, have the
right after consummation of such transaction and during the remaining term of
the option or SAR to receive upon exercise of such award an amount equal to the
excess of the fair market value on the date of exercise of the securities or
other consideration receivable in the merger in respect of a share common stock
over the exercise price of the option or SAR, multiplied by the number of shares
of common stock with respect to which the option or SAR is exercised.
Upon a change in control of StateFed Financial Corporation, unless
otherwise provided by the committee in the applicable award agreement, any
restrictions or vesting period with respect to any outstanding awards will
immediately lapse and all such awards will become fully vested.
An ISO awarded under the plan may be transferred only upon the death of
the participant to whom it has been granted, by will or the laws of descent and
distribution. An award other than an ISO may be transferred during the lifetime
of the participant to whom it was awarded pursuant to a qualified domestic
relations order or by gift to any member of the participant's immediate family
or to a trust for the benefit of any member of the participant's immediate
family.
Our Board of Directors may amend or terminate the 2002 Plan without the
approval of the shareholders or consent of the participants of the 2002 Plan,
except when otherwise required by law or regulation or by the rules of any stock
exchange or automated quotation system on which the shares our common stock may
be listed or quoted, and except that the committee may not amend any outstanding
award without the consent of the participant.
14
The following options have been granted by the Board of Directors, subject
to stockholder approval of the 2002 Plan.
-------------------------------------------------------------------
New Plan Benefits
2002 OMNIBUS INCENTIVE PLAN
-------------------------------------------------------------------
Name and Position Dollar Value ($) Number of Options
-------------------------------------------------------------------
Randall C. Bray - 19,256
-------------------------------------------------------------------
Executive Group - 40,256
-------------------------------------------------------------------
Non-Executive Director - 12,500
Group
-------------------------------------------------------------------
Non-Executive Officer - 7,750
Employee Group
-------------------------------------------------------------------
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's executive office at
13523 University Avenue, Clive, Iowa 50325, no later than May 29, 2003. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Securities Exchange Act of 1934, as amended. Otherwise, any shareholder
proposal to take action at such meeting must be received at the Company's
executive office at 13523 University Avenue, Clive, Iowa 50325 by August 22,
2003; provided, however, that in the event that the date of the annual meeting
is held before September 23, 2003, or after November 23, 2003, the shareholder
proposal must be received not later than the close of business on the later of
the 40th day prior to such annual meeting or the tenth day following the day on
which notice of the date of the annual meeting was mailed or public announcement
of the date of such meeting was first made. All shareholder proposals must also
comply with the Company's by-laws and Delaware law.
ANNUAL REPORTS
Shareholders of record on September 25, 2002, should have received a copy
of our 2002 annual report to shareholders either with this proxy statement or
prior to its receipt. If, upon receipt of this proxy material, you have not
received the annual report to shareholders, please write to the Corporate
Secretary at the address below and a copy will be sent to you. Although the
annual report is being mailed to shareholders with this proxy statement, it does
not constitute a part of the proxy solicitation materials and is not
incorporated herein by reference.
IN ADDITION, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 2002, IS AVAILABLE TO EACH RECORD AND BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATE SECRETARY, STATEFED FINANCIAL CORPORATION, 13523 UNIVERSITY AVENUE,
CLIVE, IOWA 50325.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Randall C. Bray
Randall C. Bray
CHAIRMAN OF THE BOARD
Des Moines, Iowa
September 26, 2002
15
APPENDIX A
STATEFED FINANCIAL CORPORATION
2002 OMNIBUS INCENTIVE PLAN
1. PLAN PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Company and its stockholders by providing a means for
attracting and retaining directors, advisory directors, officers and employees
of the Company and its Affiliates.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"Affiliate" -- means any "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Award" -- means the grant by the Committee under this Plan of an
Incentive Stock Option, a Non-Qualified Stock Option, a Stock Appreciation
Right, Restricted Stock or a Performance Award, or any combination thereof, as
provided in the Plan.
"Award Agreement" -- means the agreement evidencing the grant of an
Award made under the Plan.
"Cause" -- means termination of service by reason of personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties or gross
negligence.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee referred to in Section 3 hereof.
"Company" -- means StateFed Financial Corporation and any successor
thereto.
"Continuous Service" -- means the absence of any interruption or
termination of service as a director, advisory director, officer or employee of
the Company or an Affiliate, except that when used with respect to a person
granted an Incentive Stock Option means the absence of any interruption or
termination of service as an employee of the Company or an Affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of transfers
between payroll locations of the Company or between the Company, its parent, its
subsidiaries or its successor.
"ERISA" -- means the Employee Retirement Income Security Act of
1974, as amended.
"Incentive Stock Option" -- means an option to purchase Shares
granted by the Committee which is intended to qualify as an Incentive Stock
Option under Section 422 of the Code. Unless otherwise set forth in the Award
Agreement, any Option which does not qualify as an Incentive Stock Option for
any reason shall be deemed a Non-Qualified Stock Option.
"Market Value" -- means the closing high bid with respect to a
Share on the date in question on the Nasdaq Stock Market, or any similar system
then in use, or, if the Shares are not then traded on the Nasdaq Stock Market or
any similar system, the closing sales price on such date (or, if there is no
reported sale on such date, on the last preceding date on which any reported
sale occurred) of a Share on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if on such date the Shares are not quoted on the
Composite Tape, on the New York Stock Exchange, or if the Shares are not listed
or admitted to trading on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 (the
"Exchange At") on which the Shares are listed or admitted to trading, or, if
the Shares are not listed or admitted to trading on any such exchange, the fair
market value on such date of a Share as the Committee shall determine.
16
"Non-Qualified Stock Option" -- means an option to purchase Shares
granted by the Committee which does not qualify, for any reason, as an Incentive
Stock Option under Section 422 of the Code.
"Option" -- means an Incentive Stock Option or a Non-Qualified Stock
Option awarded to a Participant pursuant to Section 5(a) hereof.
"Participant" -- means any director, advisory director, officer or
employee of the Company or any Affiliate who is selected by the Committee to
receive an Award.
"Performance Award" -- means an Award granted pursuant to Section
5(d) herein.
"Plan" -- means this 2002 Omnibus Incentive Plan of the Company.
"Related" -- means (i) in the case of a Stock Appreciation Right, a
Stock Appreciation Right which is granted in connection with, and to the extent
exercisable, in whole or in part, in lieu of, an Option or another Stock
Appreciation Right and (ii) in the case of an Option, an Option with respect to
which and to the extent a Stock Appreciation Right is exercisable, in whole or
in part, in lieu thereof.
"Restricted Stock" -- means Shares awarded to a Participant pursuant
to Section 5(c) hereof.
"Retirement" -- means retirement from employment with the Company or
an Affiliate thereof, as an employee, director, director emeritus or advisory
director thereof, having reached the age of 65.
"Shares" -- means the shares of common stock of the Company.
"Stock Appreciation Right" -- means a stock appreciation right with
respect to Shares granted by the Committee pursuant to the Plan.
"Ten Percent Holder" -- means any individual who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company and any Affiliate.
"Termination of Service" - means cessation of service, for any
reason, whether voluntary or involuntary, so that the affected individual is not
either (i) an employee of the Corporation or any Affiliate for purposes of an
Incentive Stock Option, or (ii) a director, advisory director or employee of the
Corporation or any affiliate for purpose of any other Award.
3. ADMINISTRATION. The Plan shall be administered by a Committee
consisting of two or more members of the Board of Directors of the Company, each
of whom (i) shall be an outside director as defined under Section 162(m) of the
Code and the regulations thereunder and (ii) shall be a Non-Employee Director as
defined under Rule 16(b) of the Securities Exchange Act of 1934 or any similar
or successor provision. The members of the Committee shall be appointed by the
Board of Directors of the Company. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board of Directors of the Company,
the Committee shall have sole and complete authority and discretion to (i)
select Participants and grant Awards; (ii) determine the number of Shares to be
subject to types of Awards generally, as well as to individual Awards granted
under the Plan; (iii) determine the terms and conditions upon which Awards shall
be granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, to correct any defect or supply
an omission or reconcile any inconsistency in the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
17
4. SHARES SUBJECT TO PLAN.
(a) Subject to adjustment by the operation of Section 7, the
maximum number of Shares with respect to which Awards may be made under the Plan
is 127,952 Shares. The Shares with respect to which Awards may be made under the
Plan may be either authorized and unissued shares or previously issued shares
reacquired and held as treasury shares. Shares which are subject to Related
Stock Appreciation Rights and Related Options shall be counted only once in
determining whether the maximum number of Shares with respect to which Awards
may be granted under the Plan has been exceeded. An Award shall not be
considered to have been made under the Plan with respect to any Option or Stock
Appreciation Right which terminates or with respect to Restricted Stock which is
forfeited, and new Awards may be granted under the Plan with respect to the
number of Shares as to which such termination or forfeiture has occurred.
(b) During any calendar year, no Participant may be granted Awards
under the Plan of more than 63,976 Shares, subject to adjustment as provided in
Section 7.
5. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options
to Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine, including the granting of Options in tandem with
other Awards under the Plan:
(i) EXERCISE PRICE. The exercise price per Share for an
Option shall be determined by the Committee; PROVIDED THAT, in the
case of an Incentive Stock Option, the exercise price thereof shall
not be less than 100% of the Market Value of a Share on the date of
grant of such Option; PROVIDED FURTHER THAT, in the case of an
Incentive Stock Option granted to a Ten Percent Holder, the exercise
price thereof shall not be less than 110% of the Market Value of a
Share on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by
the Committee, but shall be no greater than 15 years; PROVIDED THAT,
in the case of an Incentive Stock Option, the term of such Option
shall not exceed ten years; PROVIDED FURTHER THAT, in the case of an
Incentive Stock Option granted to a Ten Percent Holder, the term of
such option shall not exceed five years.
(iii) TIME AND METHOD OF EXERCISE. Except as provided in
paragraph (a) of Section 6, no Option granted hereunder may be
exercised unless at the time the Participant exercises such Option,
such Participant has maintained Continuous Service since the date of
grant of such Option. To exercise an Option under the Plan, the
Participant to whom such Option was granted shall give written
notice to the Company in form satisfactory to the Committee (and, if
partial exercises have been permitted by the Committee, by
specifying the number of Shares with respect to which such
Participant elects to exercise such Option) together with full
payment of the exercise price, if any and to the extent notice is
received by the Company. Payment, if any is required, shall be made
either (i) in cash (including check, bank draft or money order) or,
if the Committee specifically approves in writing on an individual
basis, (ii) by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in such
appropriate manner as may be provided by the Committee or as may be
required in order to comply with or to conform to requirements of
any applicable laws or regulations, or (B) a combination of cash and
such Shares.
(iv) OPTION AGREEMENTS. At the time of an Award of an Option,
the Participant shall enter into an Award Agreement with the Company
in a form specified by the Committee, agreeing to the terms and
conditions of the Award and such other matters as the Committee
shall in its sole discretion determine.
18
(v) LIMITATIONS ON VALUE OF EXERCISABLE INCENTIVE STOCK
OPTIONS. The aggregate Market Value of the Shares with respect to
which Incentive Stock Options are exercisable for the first time by
a Participant in any calendar year shall not exceed $100,000.
(vi) ELIGIBLE RECIPIENTS OF INCENTIVE STOCK OPTIONS.
Incentive Stock Options may be granted by the Committee only to
employees of the Company or its Affiliates.
(vii) Incentive Stock Options must be granted no later than 10
years from the date the Plan is adopted or approved by the
stockholders, whichever is earlier.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized
to grant Stock Appreciation Rights to Participants with the following terms and
conditions and with such additional terms and conditions not inconsistent with
the provisions of the Plan as the Committee shall determine:
(i) GENERAL. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation
Right was granted to receive a number of Shares or cash or
combination thereof, as the Committee in its discretion shall
determine, the aggregate value of which (i.e., the sum of the amount
of cash and/or Market Value of such Shares on date of exercise)
shall equal (as nearly as possible, it being understood that the
Company shall not issue any fractional shares) the amount by which
the Market Value per Share on the date of such exercise shall exceed
the exercise price of such Stock Appreciation Right, multiplied by
the number of Shares with respect to which such Stock Appreciation
Right shall have been exercised.
(ii) RELATED OPTIONS. A Stock Appreciation Right may be
Related to an Option or may be granted independently of any Option
as the Committee shall from time to time in each case determine. In
the case of a Related Option, such Related Option shall cease to be
exercisable to the extent of the Shares with respect to which the
Related Stock Appreciation Right was exercised. Upon the exercise or
termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to
which the Related Option was exercised or terminated. If the Related
Option is an Incentive Stock Option, the Related Option shall
satisfy all restrictions and the limitations imposed on Incentive
Stock Options under paragraph (a) of this Section 5 (including,
without limitation, restrictions on exercise price and term).
(iii) EXERCISE PRICE AND TERM. The exercise price and term of
each Stock Appreciation Right shall be fixed by the Committee;
PROVIDED THAT, that the term of a Stock Appreciation Right shall not
exceed 15 years.
(iv) STOCK APPRECIATION RIGHT AGREEMENTS. At the time of an
Award of a Stock Appreciation Right, the Participant shall enter
into an Award Agreement with the Company in a form specified by the
Committee, agreeing to the terms and conditions of the Award and
such other matters as the Committee shall in its sole discretion
determine.
(v) TIME AND METHOD OF EXERCISE. Except as provided in
paragraph (a) of Section 6, no Stock Appreciation Right may be
exercised unless at the time the Participant exercises such Stock
Appreciation Right, such Participant has maintained Continuous
Service since the date of grant of such Stock Appreciation Right. To
exercise a Stock Appreciation Right under the Plan, the Participant
to whom such Stock Appreciation Right was granted shall give written
notice to the Company in form satisfactory to the Committee (and, if
partial exercises have been permitted by the Committee, by
specifying the number of Shares with respect to which such
Participant elects to exercise such Stock Appreciation Right)
together with full payment of the exercise price, if any and to the
extent required. The date of exercise shall be the date on which
such notice is received by the Company. Payment, if any is required,
shall be made either (i) in cash (including check, bank draft or
money order) or with the specific written permission of the
Committee (ii) by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in such
appropriate manner as
19
may be provided by the Committee or as may be required in order to
comply with or to conform to requirements of any applicable laws or
regulations, or (B) a combination of cash and such Shares.
(c) RESTRICTED STOCK. The Committee is hereby authorized to grant
Awards of Restricted Stock to Participants with the following terms and
conditions and with such additional terms and conditions not inconsistent with
the provisions of the Plan as the Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock shall be
subject to such restrictions as the Committee may impose (including,
without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right
or property with respect thereto), which restrictions may lapse
separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate.
During the period of time in which the Shares awarded as Restricted
Stock are subject to the restrictions contemplated herein (a
"Restricted Period"), unless otherwise permitted by the Plan or by
the Committee as provided in the applicable Award Agreement, such
Shares may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant. Except for the restrictions which may
be imposed on Restricted Stock, a Participant to whom Shares of
Restricted Stock have been awarded shall have all the rights of a
stockholder, including but not limited to the right to receive all
dividends paid on such Shares and the right to vote such Shares.
(ii) RESTRICTED STOCK AGREEMENTS. At the time of an Award of
Shares of Restricted Stock, the Participant shall enter into an
Award Agreement with the Company in a form specified by the
Committee, agreeing to the terms and conditions of the Award and
such other matters as the Committee shall in its sole discretion
determine.
(iii) STOCK CERTIFICATES. Any Restricted Stock granted under
the Plan shall be evidenced by issuance of a stock certificate or
certificates, which certificate or certificates shall be held by the
Company. Such certificate or certificates shall be registered in the
name of the Participant and shall bear the following (or similar)
legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Company's
2002 Omnibus Incentive Plan and an Agreement entered into
between the registered owner and the Company. Copies of such
Plan and Agreement are on file in the offices of the Secretary
of the Company, 13523 University Avenue, Clive, Iowa 50325."
(iv) REMOVAL OF RESTRICTIONS. Shares representing Restricted
Stock that are no longer subject to restrictions shall be delivered
to the holder thereof promptly after the applicable restrictions
lapse or are waived.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to
grant Performance Awards to Participants subject to the terms of the Plan and
the applicable Award Agreement. At the time of grant of a Performance Award, the
Participant shall enter into an Award Agreement with the Company in a form
specified by the Committee, agreeing to the terms and conditions of the
Performance Award and such other matters as the Committee shall in its sole
discretion determine. A Performance Award granted under the Plan (i) may be
denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan, the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any Performance Award granted and the
amount of any payment or transfer to be made pursuant to any Performance Award
shall be determined by the Committee as provided in the applicable Award
Agreement. Unless otherwise provided in the Performance Award, the term of a
Performance Award shall not exceed 15 years.
20
6. TERMINATION OF SERVICE.
(a) OPTIONS AND STOCK APPRECIATION RIGHTS.
(i) If a Participant to whom an Option or Stock Appreciation
Right was granted shall cease to maintain Continuous Service for any
reason (including total and partial disability but excluding
Retirement, death and termination of employment by the Company or
any Affiliate for Cause), such Participant may, but only within the
period of three months, in the case of an Incentive Stock Option, or
one year, in the case of a Non-Qualified Stock Option or Stock
Appreciation Right, immediately succeeding such cessation of
Continuous Service and in no event after the expiration date of such
Option or Stock Appreciation Right, exercise such Option or Stock
Appreciation Right to the extent that such Participant was entitled
to exercise such Option or Stock Appreciation Right at the date of
such cessation of Continuous Service. If the Continuous Service of a
Participant to whom an Option or Stock Appreciation Right was
granted by the Company is terminated for Cause, all rights under any
Option or Stock Appreciation Right of such Participant shall expire
immediately upon the giving to the Participant of notice of such
termination.
(ii) If a Participant to whom an Option or Stock Appreciation
Right was granted shall cease to maintain Continuous Service due to
Retirement, such Participant may, but only within the period of
three months, in the case of an Incentive Stock Option, or two
years, in the case of a Non-Qualified Stock Option or Stock
Appreciation Right, immediately succeeding such cessation of
Continuous Service and in no event after the expiration date of such
Option or Stock Appreciation Right, exercise such Option or Stock
Appreciation Right to the extent that such Participant was entitled
to exercise such Option or Stock Appreciation Right at the date of
such cessation of Continuous Service.
(iii) In the event of the death of a Participant while in the
Continuous Service of the Company or an Affiliate or within the
periods referred to in paragraphs (a)(i) and (a)(ii) of this Section
6, the person to whom any Option or Stock Appreciation Right held by
the Participant at the time of his or her death is transferred by
will or the laws of descent and distribution or in the case of an
Award other than an Incentive Stock Option, pursuant to a qualified
domestic relations order, as defined in the Code or Title I of ERISA
or the rules thereunder, or as otherwise permitted to be transferred
under Section 10 of the Plan may, but only within the period of two
years immediately succeeding the date of death of such Participant,
and in no event after the expiration date of such Option or Stock
Appreciation Right, exercise such Option or Stock Appreciation Right
to the extent that such Participant was entitled to exercise such
Option or Stock Appreciation Right immediately prior to his death.
Following the death of any Participant to whom an Option was granted
under the Plan, irrespective of whether any Related Stock
Appreciation Right shall have theretofore been granted to the
Participant or whether the person entitled to exercise such Related
Stock Appreciation Right desires to do so, the Committee may, as an
alternative means of settlement of such Option, elect to pay to the
person to whom such Option is transferred as permitted by Section 10
of this Plan, the amount by which the Market Value per Share on the
date of exercise of such Option shall exceed the exercise price of
such Option, multiplied by the number of Shares with respect to
which such Option is properly exercised. Any such settlement of an
Option shall be considered an exercise of such Option for all
purposes of the Plan.
(iv) Notwithstanding the provisions of subparagraphs (i)
through (iii) above, the Committee may, in its sole discretion,
establish different terms and conditions pertaining to the effect of
termination to the extent permitted by applicable federal and state
law.
(b) RESTRICTED STOCK. Except as otherwise provided in this Plan,
if a Participant ceases to maintain Continuous Services for any reason (other
than death, total or partial disability or Retirement) unless the Committee, in
its sole discretion, shall otherwise determine, all shares of Restricted Stock
theretofore awarded to such Participant and which at the time of such
termination of Continuous Service are subject to the restrictions
21
imposed by paragraph (c)(i) of Section 5 shall upon such termination of
Continuous Service be forfeited and returned to the Company. Unless the
Committee, in its sole discretion, shall otherwise determine, if a Participant
ceases to maintain Continuous Service by reason of death, total or partial
disability or Retirement, all shares of Restricted Stock theretofore awarded to
such Participant and which at the time of such termination of Continuous Service
are subject to the restrictions imposed by paragraph (c)(i) of Section 5 shall
upon such termination of Continuous Service be free of restrictions and shall
not be forfeited.
(c) PERFORMANCE AWARDS. In the event that a Participant to whom a
Performance Award has been granted shall cease to maintain Continuous Service
for any reason, the rights of such Participant or any person to whom the Award
may have been transferred as permitted by Section 10 shall be governed by the
terms of the Plan and the applicable Award Agreement.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Company, the maximum aggregate number and
class of shares and exercise price of the Award, if any, as to which Awards may
be granted under the Plan and the number and class of shares and exercise price
of the Award, if any, with respect to which Awards have been granted under the
Plan shall be appropriately adjusted by the Committee, whose determination shall
be conclusive. Any Award which is adjusted as a result of this Section 7 shall
be subject to the same restrictions as the original Award.
8. EFFECT OF MERGER ON OPTIONS AND STOCK APPRECIATION RIGHTS. In the
case of any merger, consolidation or combination of the Company (other than a
merger, consolidation or combination in which the Company is the continuing
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof), any Participant to whom an Option or Stock Appreciation
Right has been granted shall have the additional right (subject to the
provisions of the Plan and any limitation applicable to such Option or Stock
Appreciation Right), thereafter and during the term of each such Option or Stock
Appreciation Right, to receive upon exercise of any such Option or Stock
Appreciation Right an amount equal to the excess of the fair market value on the
date of such exercise of the securities, cash or other property, or combination
thereof, receivable upon such merger, consolidation or combination in respect of
a Share over the exercise price of such Stock Appreciation Right or Option,
multiplied by the number of Shares with respect to which such Option or Stock
Appreciation Right shall have been exercised. Such amount may be payable fully
in cash, fully in one or more of the kind or kinds of property payable in such
merger, consolidation or combination, or partly in cash and partly in one or
more of such kind or kinds of property, all in the discretion of the Committee.
9. EFFECT OF CHANGE IN CONTROL. Each of the events specified in the
following clauses (i) through (iii) of this Section 9 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, shall become the
beneficial owner of shares of the Company with respect to which 25% or more of
the total number of votes for the election of the Board of Directors of the
Company may be cast, (ii) as a result of, or in connection with, any cash tender
offer, merger or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who were directors of the
Company shall cease to constitute a majority of the Board of Directors of the
Company, or (iii) the stockholders of the Company shall approve an agreement
providing either for a transaction in which the Company will cease to be an
independent publicly-owned corporation or for a sale or other disposition of all
or substantially all the assets of the Company. Upon a change in control, unless
the Committee shall have otherwise provided in the applicable Award Agreement,
any restrictions or vesting period with respect to any outstanding Awards shall
lapse and all such Awards shall become fully vested in the Participant to whom
such Awards were awarded; provided, however, that no Award which has previously
been exercised or otherwise terminated shall become exercisable.
10. ASSIGNMENTS AND TRANSFERS. No Award granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution,
except that an Award other than an Incentive Stock Option may be transferred
pursuant to a qualified domestic relations order or by gift to any member of the
Participant's immediate family or to a trust for the benefit of one or more of
such immediate family members. During the lifetime of an
22
Award recipient, an Award shall be exercisable only by the Award recipient
unless it has been transferred as permitted hereby, in which case it shall be
exercisable only by such transferee. For the purpose of this Section 10, a
Participant's "immediate family" shall mean the Participant's spouse, children
and grandchildren.
11. EMPLOYEE RIGHTS UNDER THE PLAN. No person shall have a right to be
selected as a Participant nor, having been so selected, to be selected again as
a Participant and no officer, employee or other person shall have any claim or
right to be granted an Award under the Plan or under any other incentive or
similar plan of the Company or any Affiliate. Neither the Plan nor any action
taken thereunder shall be construed as giving any employee any right to be
retained in the employ of or serve as a director or advisory director of the
Company or any Affiliate.
12. DELIVERY AND REGISTRATION OF STOCK. The Company's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933, as amended, or any other federal,
state or local securities legislation. It may be provided that any
representation requirement shall become inoperative upon a registration of the
Shares or other action eliminating the necessity of such representation under
such Securities Act or other securities legislation. The Company shall not be
required to deliver any Shares under the Plan prior to (i) the admission of such
Shares to listing on any stock exchange on which Shares may then be listed, and
(ii) the completion of such registration or other qualification of such Shares
under any state or federal law, rule or regulation, as the committee shall
determine to be necessary or advisable.
13. WITHHOLDING TAX. Upon the termination of the restricted period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Company shall have the right to require the Participant or other
person receiving such shares to pay the Company the amount of any taxes which
the Company is required to withhold with respect to such shares, or, in lieu
thereof, to retain or sell without notice, a sufficient number of shares held by
it to cover the amount required to be withheld. The Company shall have the right
to deduct from all dividends paid with respect to shares of Restricted Stock the
amount of any taxes which the Company is required to withhold with respect to
such dividend payments.
The Company shall have the right to deduct from all amounts paid in cash
with respect to the exercise of a Stock Appreciation Right under the Plan any
taxes required by law to be withheld with respect to such cash payments. Where a
Participant or other person is entitled to receive Shares pursuant to the
exercise of an Option or Stock Appreciation Right pursuant to the Plan, the
Company shall have the right to require the Participant or such other person to
pay the Company the amount of any taxes which the Company is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
All withholding decisions pursuant to this Section 13 shall be at the sole
discretion of the Committee or the Company.
14. AMENDMENT OR TERMINATION.
(a) Subject to paragraph (b) of this Section 14, the Board of
Directors of the Company may amend, alter, suspend, discontinue, or terminate
the Plan at any time without the consent of shareholders or Participants, except
that any such action will be subject to the approval of the Company's
shareholders if, when and to the extent such shareholder approval is necessary
or required for purposes of any applicable federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the
Shares may then be listed or quoted, or if the Board of Directors of the
Company, in its discretion, determines to seek such shareholder approval.
(b) Except as otherwise provided herein, the Committee may waive
any conditions of or rights of the Company or modify or amend the terms of any
outstanding Award. The Committee may not, however, amend, alter, suspend,
discontinue or terminate any outstanding Award without the consent of the
Participant or holder thereof, except as otherwise herein provided.
23
15. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
upon its adoption by the Board of Directors of the Company, subject to the
approval of the Plan by the shareholders of the Company. It shall continue in
effect for a term of 15 years unless sooner terminated under Section 14 hereof.
24
REVOCABLE PROXY REVOCABLE PROXY
STATEFED FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
October 23, 2002
The undersigned hereby appoints the Board of Directors of StateFed
Financial Corporation (the "Company"), with full powers of substitution, to act
as attorneys and proxies for the undersigned to vote all shares of capital stock
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders (the "Meeting") to be held at the West Des Moines Marriott, 1250
74th Street, West Des Moines, Iowa on October 23, 2002 at 2:30 p.m. and at any
and all adjournments and postponements thereof.
1. The election as directors of all nominees listed below (except as marked
to the contrary):
[ ] FOR [ ] VOTE WITHHELD
INSTRUCTION: To withhold your vote for any individual nominee, strike a
line in that nominee's name below.
RANDALL C. BRAY KEVIN J. KRUSE
2. The approval of the 2002 Omnibus Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL AND EACH OF THE NOMINEES
LISTED ABOVE. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL
BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
MEETING.
The Board of Directors recommends a vote "FOR" the proposal and the
election of the nominees listed above.
(Continued and to be SIGNED on Reverse Side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and choose to vote at the Meeting or at
any adjournments or postponements thereof, and after notification to the
Secretary of the Company at the Meeting of the stockholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of notice of the Meeting, a Proxy Statement and an
Annual Report to Stockholders.
Dated: ________________________________, 2002
---------------------------------------------
Signature of Stockholder
Please sign exactly as your name(s) appear(s)
to the left. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full title. If shares are
held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.